Problem 11-13 Scenario Analysis (LO2)

Consider the following scenario analysis:

		Rate of Return
Scenario	Probability	Stocks		Bonds
Recession	0.20	7	%	20	%
Normal economy	0.60	22	%	11	%
Boom	0.20	33	%	7	%

a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?

multiple choice

• No

• Yes

b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

	Expected Rate of Return		Standard Deviation
Stocks		%		%
Bonds		%		%